Dow's Drop Is Worst Since November

Stocks tumbled as steep declines in gold and other commodity prices fueled a selloff after worse-than-expected data on Chinese and U.S. economic growth.

The plunge on Monday began during Asian hours and spread around the globe. Late in the day, news of explosions at the site of the Boston Marathon added to market jitters.

Stocks continued to slide on the back of worries about economic growth in China and a steep tumble in commodity prices. John Shipman reports.

But for most of the day, attention was centered on the dive in gold prices. For the second straight session, gold plummeted, losing $140.40, or 9.4%, to settle at $1360.60 a troy ounce. The drop was the largest one-day percentage fall since February 1983. Monday's decline brought the two-day losses to $203.70, or 13%.

The Dow Jones Industrial Average sank 265.86 points, or 1.8%, to 14599.20. The Standard & Poor's 500-stock index slipped 36.49 points, or 2.3%, to 1552.36, and the Nasdaq Composite Index fell 78.46 points, or 2.4%, to 3216.49. Total stock-trading volume across all major U.S. exchanges was its highest this year, with 8.36 billion shares changing hands, the most since Dec. 21.

As investors exited riskier investments, small-company stocks were particularly hard hit. The Russell 2000 index shed 3.8%, to 907.21, its worst point and percentage decline since November 2011.

For weeks, stocks have defied expectations for a pullback and on many days, an early selloff was pared by the end of trading. But Monday's retreat saw the Dow industrials sink into the close and mark their worst one-day point and percentage decline since Nov. 7.

Declines in commodity-linked sectors far outpaced losses in other categories on Monday. Shares in the materials and energy sectors both declined 3.9%. Mining company Freeport-McMoRan Copper & GoldFCX-0.76% was the biggest decliner in the S&P 500, shedding $2.65, or 8.3%, to $29.27.

ENLARGE

"When you talk about the sectors that are leading on the way down, they're all commodity-backed in some fashion," said Will Bertsch, head of U.S. equity trading for BMO Capital Markets. At the same time, Monday saw a sharp rise in exchange-traded-fund trading volume. "We think that speaks to investors putting on hedges," by selling ETFs, Mr. Bertsch said.

Among ETFs Monday, there was record trading volume in the SPDR Gold Trust,GLD0.63% which tracks the price of physical gold. More than 93 million shares of the ETF changed hands, shattering the previous record of 79 million.

Despite the turmoil, traders said stock trading was smooth. "Ironically, it's not as busy as you would expect when you see moves like this," said Mr. Bertsch.

ENLARGE

The selloff began in Asia and spread around the globe, sparked by disappointing Chinese data. Above, traders at the Big Board on Monday.
Getty Images

Helping kick off the selling was data showing China's economy expanded 7.7% in the first quarter. That fell short of expectations of 8%. Data on Chinese industrial production for March also missed forecasts. The Shanghai Composite Index declined 1.1% to its lowest level this year, while Hong Kong's Hang Seng Index fell 1.4%. Japan's Nikkei Stock Average pulled back 1.6%.

"Commodities can't appreciate without China being strong," said Jeffrey Sica, chief investment officer and founder of SICA Wealth Management, which invests in gold. He said he was sitting on his positions but "wouldn't want to be among the first to try to call a bottom here."

He said the corresponding selloff in stocks could be a sign that large investment funds are selling stockholdings to cover losses. "What's important to realize is how much gold is used as collateral," he said.

"I think a lot of hedge funds were long gold, and holding out for a move up with all the money-printing that's going on" by global central banks, said Viren Chandrasoma, U.S. head of program trading at Credit Suisse Group AGCS0.03%. "That has not come to pass…as soon as it started to look shaky, people were heading to the exits." Investors tend to buy the metal as a hedge against the inflation that may follow the increased liquidity in the financial system from monetary easing.

Silver prices dropped 11%, to $23.3550 an ounce. Crude oil also declined, with prices slumping 2.8%, to $88.71 a barrel. The dollar rose against the euro and fell against the yen. Meanwhile, demand rose for the haven 10-year Treasury note, pushing the yield down to 1.702%.

Also weighing on stocks were two reports on the U.S. economy that came in worse than expected.

The Federal Reserve Bank of New York reported that manufacturing barely expanded in the New York region this month, as the business-conditions index declined more than expected. Separately, home builders' confidence fell for the third straight month, on expectations of a rise.

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